What is a Stock Exchange?
A stock exchange is a general term given to a place where investors buy and sell stocks, bonds, currencies and other types of derivatives. A stock exchange lists all the various stocks and derivatives available for sale. Stock exchanges come in various types, including private, public or non-profit exchanges. These exchanges are always organized and regulated, and are often referred to as stock markets.
A stock market serves two key purposes. It is a place where corporations, governments and other types of organizations can raise funds by selling stocks or other derivatives. Stocks, sold on a stock exchange, are from public corporations. These corporations issue stock to raise funds for business operations. When a company first issues stocks, the stock sold on a market is considered the primary market. The second key purpose is that a stock market exchange offers a secondary market for investors who want to buy and sell stocks. The secondary market also includes all exchanges made after a company initially issues its stocks.
Investors, who use the stock market for trading, are required to obtain a broker. Many investors choose to do this from home, and all transactions made are online in real time. Many different brokers are available, and investors choose one by investigating each broker’s requirements and policies. For example, brokers vary by minimum balance requirements, number of trades they allow and the amount of fees they charge. Stock prices are derived from market supply and demand, as well as other factors. Investors make profits by purchasing stocks at a lower price than the price they resell them for.
Investors who trade from home make trades that are considered over-the-counter trades. This means that the investor is not physically at a stock exchange when making the trades. People who trade at stock exchanges are often called floor traders. They make trades from the physical location. There are several popular stock market exchanges people use; which include the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX), the Foreign Stock Exchange (Forex), the London Stock Exchange (LSE) and the Tokyo Stock Exchange (TSE). The NYSE is the oldest and largest exchange, and is located on Wall Street in New York City.
For companies wanting to sell stocks and derivatives on an exchange, they must follow stringent rules of the exchange. Stock market exchanges impose requirements that all companies must abide for. One main requirement is that all companies must provide annual statements and financial reports to all stockholders. At the end of each open market day, a stock market offers a summary of what occurred during the day. This summary is listed in terms of points, and states whether the market was up or down for the day, as well as the number of points. Positive movements in stock markets, generally illustrate positive signs in the economy. When a stock exchange is up, investors have confidence in the market and continue trading. When an exchange is down, investors are often scared, and may pull out of the market until it levels out.
The stock market is vital for investors. It offers people an easy way to trade, and allows individuals to own a small piece of a company. When entering the stock market, investors should use caution and perform research on all stocks they buy and sell.